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Labor leverage, financial statement comparability, and corporate employment

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Title:Labor leverage, financial statement comparability, and corporate employment
Authors:Jiarui Iris Zhang
Boochun Jung
Yiding Wang
Byungki Kim
Keywords:Financial Statement Comparability
Labor Leverage
Labor Unions
Labor Intensity
Labor Share
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Date Issued:22 Aug 2020
Abstract:We examine how labor-induced operating leverage shapes managers' decision to adopt more comparable financial statement. We hypothesize that firms subject to higher labor-induced operating leverage are more likely to adopt more comparable financial statements in order to facilitate more timely employment adjustment which reduces firm risk related to labor leverage. Consistent with our hypothesis, we find that proxies for labor-induced operating leverage, such as labor unions, labor intensity, and labor share are positively related to financial statement comparability. We also find that financial statement comparability increases the sensitivity of hiring to performance change, particularly, for negative operating performance, supporting our notion that financial statement comparability helps managers' timelier labor adjustment. Last, we examine whether the improved comparability prevents massive layoffs thanks to continuously more timely employment adjustment. Consistent with our prediction, we find that comparability reduces the likelihood of large-scale layoffs.
Appears in Collections: 11 Financial Accounting 4: Accounting Issues Related to Labor, Politics, and Environments

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